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Monday, December 31, 2012

I have been asked to select the key posts from this blog and I am doing this below according to different subject areas. I only list posts of the year 2011. Why do I do this? Well, while I believe that the original sin was committed by EU-elites in 2010, that original sin could still have been corrected in 2011. Instead of correcting it, they reinforced it during 2011. Whatever happened thereafter is an unfolding of that.

From ‘EU Task Force’ to ‘EU-Assistance desired by Greece/Greeks’

A.Introduction

The ExecutiveSummary of the 1st TFGR Report is a very well formulated document
which subtly caters to cultural and other idiosyncrasies of Greek society
(example: “The Task Force is a resource at the disposal of the Greek
authorities as they seek to build a modern and prosperous Greece”). Nevertheless,
it is recognizable that it was primarily written by foreigners for Greece and
not by Greeks for themselves.

The entire
conduct of Greece since the beginning of the crisis can be characterized as
non-ownership. This inevitably translates into a perception on the part of the
Greek people that “we have to do what they (the foreigners) force upon
us!”

This also
applies to the TFGR. As long as Greeks have the perception that the TFGR is
something which EU-elites have decided to bring upon Greece, the TFGR’s success
will be limited. It will face the risk of being perceived as a type of
occupation force; perhaps as enforcers of Troika-measures; and those Greeks who
cooperate with it may become seen as collaborators.

To start off,
below are 3 suggested mental experiments.

B. Mental experiment 1 - Who is it that needs
something from whom?

Suppose, back
in 2009, Greek leadership, in an attack of self-recognition, had recognized
that Greece was on the fast track towards becoming a failed state, doomed to
remain in the status of a developing country unless some corrective action
happened in a hurry. Suppose further that Greek leadership had recognized that
the only thing which could prevent such a disaster would be a massive know-how
transfer (‘development aid’) from the EU. Finally, suppose Greek leadership had
decided to invite brainpower and talent from all walks of Greek life to put
together a request for know-how transfer from the EU which would be so
convincing that the EU could not afford to reject it.

That
‘application for know-how transfer’ would have represented a very strong desire
of Greek leadership! Instead of trembling whether or not a next tranche would
be disbursed, Greeks might have trembled whether they get the know-how transfer
which they so urgently desired.

Interim finding: Something needs to be done so that the TFGR
becomes what it is supposed to be (i. e. something which the Greeks desperately
desire to have).

C. Mental experiment 2 – Why not Alexis
Tsipras?

The TFGR is
supposed to help Greek authorities as they ‘seek to build a modern and
prosperous Greece: a Greece characterized by economic opportunity and social
equity, and served by an efficient administration with a strong public service
ethos’ – this comes out of the Executive Summary. The same intention, with some
well-meaning interpretation, could come right out of the mouth of AlexisTsipras.

Suppose
Alexis Tsipras discovered that the TFGR ultimately has the same thing in mind
for Greece as he claims to have. Suppose further that Alexis Tsipras understood
that the TFGR is the only way to achieve a ‘modern Greece’. And, finally,
suppose that Alexis Tsipras would want to go down into history as the ‘father
of modern Greece’. Would it not be logical to assume that Alexis Tsipras would
travel Greece up and down to explain to Greeks that the TFGR is his own
invention and that it is the only solution for a better Greece? Would it not be
logical to assume that a majority of Greeks would become enthusiastic about the
TFGR?

Before that
would happen, would it not be logical to assume that established Greek
politicians/parties would try to jump on the TFGR-bandwagon before Alexis Tsipras owns it altogether?

Interim finding: Something needs to happen so that the TFGR
becomes perceived as something which every Greek politician wants to be the
owner of (instead of only tolerating it as a ‘necessary evil’).

D. Mental experiment 3 – Success stories

The Executive
Summary correctly stated that ‘some early successes are needed to build the
momentum for sustainable change’. Suppose the TFGR had been all over Greek
media in the last year with success stories. Success stories of how the
potential of 9 BEUR in cohesion policy projects was being utilized. Motto: a
‘huge celebration’ every time a new project, however small, gets successfully
under way. Suppose it would get so far that Greek media would continually question
the TFGR what is holding up more projects and what could be done about it?

INTERIM CONCLUSION: It is possible to imagine, without too
great an effort, that things could happen which would stimulate the sense of
ownership on the part of Greece and Greeks. Without such Greek ownership, it
seems impossible for the TFGR to achieve all the stated goals (that would be
like McKinsey starting a consulting job without proper introduction and support
from the customer’s management). Thus, a possible solution would be to find
external catalysts (people and/or events) which would catapult the TFGR into
the limelight which it requires and deserves.

E. Case in point – Cosco and the port of Piraeus

This seems to
be a prototype-example of a successful foreign investment and it should
urgently be marketed as such! Not only did a foreign investor pay a substantial
amount of money to the Greek state for leasing half of the harbor; it also
tripled the business volume in the first 2 years and is now investing 300 MEUR
into an expansion which will create new jobs and entirely new logistics
perspectives for Greece. The NYT described this as follows: “In many ways, the top-to-bottom overhaul that Cosco is imposing on
Piraeus is what Greece as a whole must aspire to if it is ever to restore
competitiveness to its recession-sapped economy, make a dent in its 24 percent
unemployment rate and avoid being dependent on its European neighbors for years
to come”.

Interim finding: Why does it take the NYT to make such a
commercial for what Greece really needs? The TFGR could/should dress up and market
to the public such an investment as the type of foreign investment that can be
and will be excellent news for Greece! (and Cosco should be involved in that
promotion). And the TFGR should present itself as the facilitator of many more
such projects in the future.

F. Allies in the cause - Groups

It will not
be enough for the EU to determine that Greece needs help to become a modern
country. Unless Greeks themselves determine that, all efforts will be more or
less futile. To promote the right kind of awareness, the TFGR should work
through ‘allies’.

It should not
be too difficult to get the media involved. Not via press conferences! Instead,
via something like ‘monthly information afternoons’. A more or less structured
event where attendants get meaningful information and some food or drinks to
loosen the atmosphere. A good keynote speaker would be useful. Above all, they
should be involved by being asked to fill out questionnaires, make proposals,
etc. If such afternoons go over well, a sense of shared mission might develop
over time.

It should be
easy to get students, particularly students of economics, excited about the
activities of the TFGR. And one should offer such students opportunities to
involve themselves on a voluntary basis. The typical thing would be to have a list
of projects on hand which could be assigned to teams of students who are
interested to participate. As an incentive, one could offer that the best
projects submitted will be awarded a prize (perhaps personally handed over by
some visiting EU-official).

Interim finding: The point of all this is to create momentum
and excitement.

G. Allies in the cause - Individuals

The TFGR
should attempt to attract the support of key public personalities as champions
of its cause. One example which comes to mind would be Peter Economides (I take
him as an example because I have read his writings and seen some of his video
presentations).

Peter
Economides is a man who has a way with words and who is a charismatic
communicator. If he would talk about the TFGR in similar fashion as I have
heard him talk about new branding for Greece, there would be enthusiastic
followers all over. But first he himself would have to be made enthusiastic for
the TFGR.

The same
would really apply to other personalities who enjoy public recognition and
respect, be they artists or whatever. One could even imagine that a testimonial
campaign in favor of the TFGR might bring some benefit.

INTERIM CONCLUSION: Without external catalysts (people and/or
events), it will be difficult, if not impossible, for the TFGR to catapult
itself into the positive limelight which it needs to accomplish the desired
impact on Greece. The common premise should be that prominent individuals
support the TFGR on a voluntary basis, i. e. out of conviction and not out of
material interest.

H. Working with public administration (WWPA)

I argue
vehemently that it is not possible to change, in a sustainable way, a large
social system like a public administration solely by implementing new
processes, training the people and by perhaps appointing a few new managers. If
there are no accompanying measures, there will be significant passive
resistance to change which will offset many of the reform benefits.

The process
of transmitting know-how from the ‘expert’ to the ‘student’ must be continually
checked and evalued by a neutral third party (an ‘observer’) to make sure that
the process is indeed working. An elite French civil servant might think that
he has just passed on the greatest wisdom to a Greek civil servant without
realizing that he has perhaps reached the ears, but not the mind and heart of
the ‘student’. A Greek ‘student’ may, without noticing it, turn off the
teacher’s motivation by continually acting like he knows everything already,
anyway. Above all, they may not be dealing at eye-level and without that, the
relationship will not work well.

The
‘observer’ would act as a coach who makes sure that both sides are on the same
wavelength; who recognizes any need for improvement; who organizes on a monthly
basis feedback sessions between ‘teacher’ and ‘student’; etc.

J. WWPA – Selection of counterparties

It is
imperative to have a strong representation of ‘practitioners’ both among the
‘teachers’ as well as the ‘students’. It is much easier to establish shared
wavelengths among ‘practitioners’ than among ‘elitist technicians’ (who may
focus on outsmarting one another).

‘Teachers’
should not only be selected on the grounds of their technical qualifications
but, even more importantly, based on their ability to communicate well and
collegially.

Among the
‘students’, it is important to open this process also to people on the lower
end in the hierarchy, particularly to motivated, impressionable and
enthusiastic young people (‘little heroes’).

In any group
there are likely to be one or more ‘leading steers’, that is people who can
sway group opinion in one direction or another. Particularly ‘observers’ should
look out for those ‘leading steers’. If they are positively-minded, they should
be moved into the limelight. If not, they should be neutralized.

It may be
necessary from time to time to set an example of harsh measures so that the
group can get back to order. If so, that measure has to be really harsh and
symbolic (disciplinary action) to get everybody’s attention back into the right
mindset.

K. WWPA – Verification

A perfect
example would be where a ‘teacher’ explains a new process, where the ‘student’
understands it but turns around and suggests even an improvement to that
process. That would be a ‘home-run’. With some creativity, one can actually
‘manufacture’ such home-runs a bit so as to provide for more frequent
experiences like the above.

In any event,
there must always be verification that things have not only been ‘learned’ but
also ‘understood and absorbed’. To think back of my Latin classes in Gymnasium:
my teacher should not only have checked that I translated the Gallic Wars
perfectly into German but he should also have checked whether I had learned
what happened during those wars.

L. TFGR – Internet presence

I could not
find any internet presence of the TFGR. In general, it is not good enough to do
good things; one also has to talk about them in order to create momentum and to
involve people.

Blogs, twitters: there are roughly two dozen serious and
competent bloggers/twitters who focus on Greece in English and who have
influence. They cover the political spectrum from The Left to the center-liberal. Over 90% of their
postings relate to Troika-measures and debt issues. In other words, they focus
on the ‘derivative’ of the problem. Hardly anyone focuses on how the Greek
economy could be gotten into shape, which is the ‘underlying’. My point is that
playing around with the ‘derivative’ will not solve anything unless the
‘underlying’ is fixed.

The TFGR
should capture the attention of these bloggers/twitters. If the latter became
as involved with TFGR-issues as they presently are with Troika/debt-issues,
life would be perfect for the TFGR.

The effort
required to accomplish the above would not be very significant. And, of course,
one should also work on something to reach Greek-speaking bloggers/twitters.

M. TFGR – Organizational positioning

It would be
interesting to make a survey among Greek parliamentarians and members of
government checking who knows what about the TFGR. It would be particularly
interesting to learn who knows which minister is responsible for the TFGR.

An outsider
gets the impression that the TFGR is a Brussels-based effort which has an
outlet in Athens and which interfaces with the Greek government. One would
definitely not get the impression that the TFGR is a priority project of the
Greek government itself.

Until the
Greek government (I think it should be the Prime Minister) comes out and
assumes loudly and clearly ownership of the TFGR, its effectiveness (and even
its success) will be much lower than it could be otherwise. If the Greek Prime
Minister does not take the initiative for that on his own, he should be
‘prompted’ to do so by EU-authorities.

In mid-2011,
McKinsey came out with a very interesting Greece Ten Years Ahead report (which, not surprisingly,
was more or less ignored in Greece). Beginning on page 27 of the Executive
Summary, there is a section titled “A new National Growth Model”. In it, the establishment of an
independent Economic Development and Reform Unit (EDRU) is recommended as an
institution directly reporting to the Prime Minister. This EDRU would be
critical to support the Greek state in coordinating, facilitating and monitoring
the implementation of growth reforms.

I argue that
the establishment of some type of this structure is imperative and I argue that
the TFGR should assume an eminent role in that structure. I further argue that
the personal responsibility for this project must be with the CEO of the
government, i. e. the Prime Minister.

If the Prime Minister
has trouble with that, one should prompt him by warning that Alexis Tsipras,
should he become Prime Minister, would make it one of his first decisions to
establish such a structure and he would be applauded for it!

Finally, to quote the OECD from its latest Public Governance Review of Greece: At
the core of its administration, Greece desperately needs a high-level structure
which has the authority, responsibility and capacity to lead the development of
a strategic vision and direction for public policies, and the effective
implementation of this vision in practice and over time.

N. TFGR – A ‘facilitator of foreign investment’

As important
as shipping was to the Greek economy (and, to a lesser degree, tourism),
remittances from Greeks working abroad (such as guest-workers in Northern
countries) were by far the largest source of foreign funding from 1950-74.
Since most of that money was spent on material and immaterial investments (such
as education for children), it is fair to say that those guest-workers laid the
foundation for Greece’s recovery after the Civil War.

Remittances
are similar in nature to foreign investment. As remittances withered away in
the 1970s, other sources of foreign funding replaced them. They came in the
form of EU-grants/subsidies (about 200 BEUR until 2010) and foreign loans (a
net increase of 283 BEUR from 2001-10). Very little came in the form of direct
foreign investment.

Thus, it is
clear that the driver behind the Greek economy has been funds flow from abroad.
Since the Euro, satisfactory employment (more or less) could only be maintained
because, on average, at least 30 BEUR flowed into the economy annually. Now
that this funds flow has forcefully been reduced, the internal and external
accounts are approaching a balanced situation but it has become clear that,
when balancing internal and external accounts, the Greek economy cannot employ
its people.

Thus, it is
also clear that if Greece is to have a better future, the funds flow from
abroad has to start up again and instead of taking the form of debt, it needs
to take the form of equity. Without significant foreign investment, the Greek
economy lacks a perspective. Foreign investment not only as a source of funding
but, equally important, as a source of know-how transfer in all areas.

The TFGR
should bring that message across to Greeks at every stop along the way.

O. TFGR – A ‘pillar of non-corruption’

It is clear
that Greeks have lost confidence in their political leaders. The latest index
by Transparency International shows that, since the crisis, Greeks perceive
their elites to have become even more corrupt.

What would
have been wrong if the journalist who had received a list with 2.000 foreign
bank account holders, instead of publishing the list, had handed it over to the
TFGR with the request to handle it in such a way as a ‘civilized’ country would
do?

What would be
wrong if the TFGR were to begin to show more ‘curiosity’ in some of the more
obvious abuses which are characterizing Greek public administration all the
time?

The TFGR
would not be doing that as a ‘spy’ for the EU. Instead, it would be doing that
as a great service to the Greek government and Greek people. And any Greek
politician who sees that differently should speak out and explain to the Greek
public why he thinks so. Not to mention the fact that making life harder for
corrupt elites would make the TFGR quite popular on Main Street.

P. TFGR – What if nothing works?

What if those
Greeks who are saying that ‘nothing will ever change in the Greek public
administration and public sector!’ turn out to be correct? Well, that may
happen but if it does happen, then even the TFGR won’t be able to do anything
about it.

Back at university 40 years ago, I remember taking a course in Political Science about the size of political elites. The course was taught by Professor Karl Deutsch, a Czechoslovak emigré; highly sophisticated; highly empirical in his research; in love with models explaining how politics worked.

If I recall correctly, one of his themes was that the number of people influencing the political fate of a society was actually a very minute percentage of society. Perhaps a few hundred people in a country of small to medium size.

Suppose that the number of people required to change the political fate of Greece would be around 1.000 (Deutsch would probably have argued that it is smaller). Is it possible to think that, in the entire Greek society, there are not around 1.000 people of competence, exceptional character and high moral decency?

Friday, December 28, 2012

I have a friend who is a Brit aged around 70 and who has worked in banking in about 16 countries. He is married to a Greek and has been residing in Greece off and on for the last 40 years and permanently for the last 10 years. He is one of those old-boy-guys who displays seemingly unlimited wisdoms on practically everything. I love to listen to his opinions.

Over the last few years, I have been incredibly impressed by his good judgement on Greek issues. I won't say that he has never been wrong but it seems to me that he has almost always been right.

In June of this year, he told me that I should look out for Friday, January 11, 2013. Why? Because, he said, on that day Greece would announce its exit from the Eurozone. I downplayed his judgement by saying that anybody could predict a day but what I would want to know is the exact hour. That's when he committed to 22 hrs on that day.

So here we go. The world did not come to an end on December 21. We'll now see whether Greece exits the Eurozone on January 11, 2013 at 22 hrs.

My friend's reasoning was interesting. Remember that in June of this year, everyone was predicting a Grexit within months; certainly before the end of the year. My friend argued that a Grexit would have to happen when nobody expected it.

He said that, by year-end, most of the tough decisions would have been taken. The negotiations with the Troika would be over; the overdue tranche would be disbursed; the fears of a Grexit would have died down; the Eurozone would have calmed down. Only, the Greek government would meanwhile have become convinced that Greece could not make it within the Eurozone.

Thus, the Grexit would be announced on the first possible date in 2013. It would have to be a Friday evening. Friday the 4th would still be in the holiday season, so that wouldn't be a good fit. Friday the 11th would be the first 'regular' Friday in 2013.

So, as New Years' Eve approaches, many people feel like making bets. If you believe what my friend is saying, bet on a Grexit on Friday, January 11, 2013 at 22 hrs. And even if you don't believe it, place the bet anyway. If you win, everyone will consider you a genius and if you lose, no one will find out.

This article from the Swiss paper TagesAnzeiger summarizes very nicely (mostly in German) the accusations which have been made against EU-leaderships many times, namely: they knew exactly what they were doing when they formed and shaped the monetary union; they knew exactly what the dangers were and --- they ignored their own findings. The most shocking realization is that the authors of the Delors-report did not think that a monetary union would come into existence in the foreseeable future: "The economic prerequisites for a monetary union that is
characterized by immutably fixed exchange rates between the participating
countries will probably not exist for the foreseeable future".

The article quotes the Delors-report from 1989 as well as comments made
to it from Karl Otto Pöhl (then the President of the Bundesbank) and
Francois Mitterand. Let me just cite the most important quotes below.

"If sufficient consideration were not given to regional
imbalances, the economic union would be faced with grave economic and political
risks".

"This is especially important because the adoption of
permanently fixed exchange rates would eliminate an important indicator of
policy inconsistencies among Community countries and remove the exchange rate
as an instrument of adjustment from the member countries’ set of economic
tools".

"A particular role would have to be assigned to common
policies aimed at developing a more balanced economic structure throughout the
Community. This would help to prevent the emergence or aggravation of regional
and sectoral imbalances which could threaten the viability of an economic and
monetary union".

"Wage flexibility and labour mobility are necessary to
eliminate differences in competitiveness in different regions and countries of
the Community. Otherwise there could be relatively large declines in output and
employment in areas with lower productivity. In order to reduce adjustment burdens
temporarily, it might be necessary in certain circumstances to provide
financing flows through official channels. Such financial support would be
additional to what might come from spontaneous capital flows or external
borrowing and should be granted on terms and conditions that would prompt the
recipient to intensify its adjustment efforts".

"Moreover, the fact that the centrally managed Community
budget is likely to remain a very small part of total public sector spending
and that much of this budget will not be available for cyclical adjustments
will mean that the task of setting a Community-wide fiscal policy stance will
have to be performed through the coordination of national budgetary policies.
Without such coordination it would be impossible for the Community as a whole
to establish a fiscal/monetary policy mix appropriate for the preservation of
internal balance, or for the Community to play its part in the international
adjustment process. Monetary policy alone cannot be expected to perform these
functions. Moreover, strong divergences in wage levels and developments, not
justified by different trends in productivity, would produce economic tensions and
pressures for monetary expansion".

"Rather than leading to a gradual adaptation of borrowing
costs, market views about the creditworthiness of official borrowers tend to
change abruptly and result in the closure of access to market financing. The
constraints imposed by market forces might either be too slow and weak or too
sudden and disruptive. Hence countries would have to accept that sharing a
common market and a single currency area imposed policy constraints".

"The economic prerequisites for a monetary union that is
characterized by immutably fixed exchange rates between the participating
countries will probably not exist for the foreseeable future. Even among the
members who form the nucleus of the exchange rate system, tensions must
repeatedly be expected for the foreseeable future owing to differing economic
policy preference and constraints as well as the resultant divergences in their
economic development, which will make realignments in the central rates of
their currencies necessary. Even within a common single market these problems
will not simply disappear, especially seeing that this market will trigger
additional structural adjustment constraints, the extent of which cannot as yet
be fully assessed. For this reason, too, it will not be possible to do fully
without occasional realignments in central rates for the foreseeable future.
This indicates the necessity for further progress in the direction of greater
convergence in a large number of macroeconomic as well as structural fields".

"Apart from this, it should be made clear that monetary
integration cannot move ahead of general economic integration, since otherwise
the whole process of integration would be burdened with considerable economic
and social tensions. Moreover, examples from history demonstrate that new
nations did not confer a uniform monetary order on themselves until after the
process of unification was concluded. Any durable attempt to fix exchange rates
within the Community and finally to replace national currencies by a European
currency would be doomed to failure so long as a minimum of policy-shaping and
decision-making in the field of economic and fiscal policy does not take place
at Community level. Without this prerequisite being met, a common European
monetary policy cannot ensure monetary stability on its own. Above all, it
cannot paper over the problems in the Community arising from differing economic
and fiscal policies".

"Isolated steps in the monetary field would overburden
monetary policy in political terms and jeopardize the credibility of the
process of unification in the longer run".

Karl Otto Pöhl commented as follows: "From the German point of view it is essential to
ensure, in the discussions about the future design of a European monetary
order, that monetary and credit policy is not geared to stability to a lesser
extent in an economically united Europe than is the case at present in the
Federal Republic of Germany". And later in retrospect: "When the report was formulated, I did not think that a monetary union would become reality in the foreseeable future. I thought perhaps sometime in the next hundred years. I thought it was improbable that other European countries would simply accept the model of the Bundesbank".

Francois Mitterrand: "I consider it dangerous that the Central Bank, for lack of an appropriate political institution, assumes sovereign power. The common currency area is already a 'German Zone' but Germany has no authority over our national economies. With the new Central Bank, Germany would have that power" (Mitterrand later became a supporter of the common currency union).

Final commentMy previous understanding had been that only people from the outside, like Milton Friedman, had criticized the monetary union (sort of as a defender of American hegemony). As is apparent, EU-leadership itself voiced the very same concerns which Friedman had voiced. I previously thought that European elites had simply been too arrogant to listen to an American. Now I know that European elites were too dumb to listen to themselves.